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CONSUELO MACK: I also asked Rob Arnott to give us his One Investment pick, something that all of us should own in a long-term, diversified portfolio. His choice is longer maturity treasury inflation protected securities, or TIPS. He says the long TIPS will help protect us against inflation surges in the years ahead. What say he ?
I bought some as a near term "bucket" for my IRA when I made my New Year's resolutions to floss three times a day, own more bond funds for ballast, and reduce the number of mutual funds I own.
I wasn't expecting FIPDX to return roughly 9% this year. I thinks there's something to be said for already being there when things turn around. But I'm not sure what.
I wasn't expecting FIPDX to return roughly 9% this year. I thinks there's something to be said for already being there when things turn around ...
Yahoo shows FIPDX having a current duration of 5.7 years, below the 7.3 year category average. I’d consider that to be intermediate term. From my own holdings (not inflation protected) it appears that the intermediare part of the yield curve has had a very good year. Some of that, I suspect, indirectly related to Fed purchases of corporates / ETFs, whose effects ripple through the whole bond market.
.05% ER? That’s insane. How do they make any money? I do still have a spot for some high quality bond funds. But not expecting much going forward. The value to me is in the perceived “safety” of AAA debt which is something you can rebalance into when your other asset classes have outperformed. Of course, an argument can also be made for cash, which is more stable.
TIPS? I’ve read both bearish and bullish commentaries recently. No opinion. What many miss, I think, is that TIPS funds do react to changes in interest rates as do other types of bonds. Yes - they also compensate the holder for increases in the CPI. But my concerns would be that that inflation adjustment would not compensate holders enough to offset a sharp decrease in bond values due to rising rates. Not a prediction. Just trying to express that I think TIPS are a bit more complex than many think. Additionally, if held thru a fund, holders would suffer further negative consequences as fleeing investors force managers to sell securities at declining prices. Always eager to learn more about TIPS. Never held them. Maybe some day. Glad to hear @WABC has something to cheer about re FIPDX.
PS - Thanks everybody for trying to get MFO back to what it does best: Discussing funds and investing.
Thanks @hank. I have a small amount of TIPS in my withdrawal bucket in the form of SCHP. The inflation hedges I read about are TIPS, commodities and gold. I have a bigger stake in gold in my over-all portfolio. I think broader based commodities will always scare me from past ventures into them, so I stay away.
Like many, I believe inflation is inevitable. Just a guess on how far into the future. And more importantly in my mind, I also think controlled 'higher' inflation is what the FED and both political parties want and need to deflate the dollar and help reduce the national debt burden. If it is a political tool, you know it will be used. I think the FED believes it (inflation) can be controlled. Lets hope so.
@MikeM - Thanks - I always enjoy hearing how others try to hedge their portfolios. Gold to me is kinda the “wicked witch” of investing - best to have her on your side. Nasty when she’s not. BTW - How much (%) do you keep now in that robo-portfolio? Seems to me you were pretty positive on it a year or so ago. Haven’t heard much lately.
I also believe inflation may increase in a few years (don't know when). In August, the Consumer Price Index for All Urban Consumers (CPI-U) rose 1.3% over the last 12 months. The 10-Year Breakeven Inflation rate is only 1.66% today.
Some commonly cited inflation hedges include: TIPS, bank-loan funds, commodities, gold, and REITs. Although stocks are not a direct hedge, long-term they usually perform well during inflationary periods. I'm most interested in TIPS for dedicated inflation protection.
While TIPS protect against inflation, they are not immune to interest rate risk. For example, VAIPX lost roughly 8.8% between May and August 2013, when rates rose sharply. VAIPX has a maturity of 8.4 years and a duration of 7.8 years as of 08/31/20. The average maturity and average duration for funds in the corresponding M* category are 8.47 years and 6.83 years respectively.
My current bond funds consist of domestic investment-grade bonds almost exclusively. Unhedged foreign stocks comprise roughly 23% of my stock allocation. What's the best way to implement TIPS within a diversified mutual fund portfolio which is approximately 70% stocks/30% bonds?
“My current bond funds consist of domestic investment-grade bonds almost exclusively.”
I’ve got about half of my bond allocation in DODLX, which is mostly investment grade - both domestic and international. The rest is mostly in investment grade intermediate corporates (PBDIX) which I began favoring over former RPSIX after reading a tip from Bill Fleckenstein in March. (Basically - he advised at that time to stick with higher quality bonds). Turned out well this year as RPSIX seems to have lagged, for reasons I don’t fully understand. Must be the drag from the 10+% allocated to their equity income fund.
I’m thinking the Fed’s backing of some corporates has been the impetus for the good bond returns across board. But, if true, than I don’t understand why HY hasn’t done better. Just checking a couple of T.Rowe’s HY funds, RPIHX, RPHYX, I find both barely above water this year. Likely, others have done better, as T. Rowe generally hews to the conservative side.
Do I like bonds overall? No. I hold some as part of a broadly diversified portfolio. If you truly want diversification you’re going to have things that look promising and things that don’t appear promising under your umbrella.
@Derf While Yahoo offers some good data information, I wouldn't reply on their performance information with the consideration that this data appears to be NAV pricing and doesn't include distributions. TR PRICE indicates +.47% YTD, M*, +.42% and stockcharts (which does indeed include distributions) indicates similar. RPIHX has monthly distributions. When in doubt or for full clarification, visit the "mother ship" for the full performance story, eh? Information to keep in mind for future performance considerations when using Yahoo.
I think people should carefully look at all angles of TIPS. I owned them in the past when inflation spiked and still lost money. As best I can tell it is the relative difference between TIPS and interest rates that determines what happens to the price. Having found them complex, I sorta gave up and rely on short term bonds gold and commodities for inflation protection
@catch22: Thanks, I'll keep that thought. Checked in with Chuck & he shows the same as your post. With that said , is total return with dividends reinvested or taken as cash ? Derf
@Derf For total return, I presume a fund distribution for purposes of the chart performance is in the form of reinvesting the distribution back into the purchase of shares of the particular investment. We personally always have a fund/holding roll any distribution back into the purchase of more shares.
Comments
I wasn't expecting FIPDX to return roughly 9% this year. I thinks there's something to be said for already being there when things turn around. But I'm not sure what.
I sure am tempted to take some profits in bonds.
Truth!!
Yahoo shows FIPDX having a current duration of 5.7 years, below the 7.3 year category average. I’d consider that to be intermediate term. From my own holdings (not inflation protected) it appears that the intermediare part of the yield curve has had a very good year. Some of that, I suspect, indirectly related to Fed purchases of corporates / ETFs, whose effects ripple through the whole bond market.
.05% ER? That’s insane. How do they make any money?
TIPS? I’ve read both bearish and bullish commentaries recently. No opinion. What many miss, I think, is that TIPS funds do react to changes in interest rates as do other types of bonds. Yes - they also compensate the holder for increases in the CPI. But my concerns would be that that inflation adjustment would not compensate holders enough to offset a sharp decrease in bond values due to rising rates. Not a prediction. Just trying to express that I think TIPS are a bit more complex than many think. Additionally, if held thru a fund, holders would suffer further negative consequences as fleeing investors force managers to sell securities at declining prices. Always eager to learn more about TIPS. Never held them. Maybe some day. Glad to hear @WABC has something to cheer about re FIPDX.
PS - Thanks everybody for trying to get MFO back to what it does best: Discussing funds and investing.
Like many, I believe inflation is inevitable. Just a guess on how far into the future. And more importantly in my mind, I also think controlled 'higher' inflation is what the FED and both political parties want and need to deflate the dollar and help reduce the national debt burden. If it is a political tool, you know it will be used. I think the FED believes it (inflation) can be controlled. Lets hope so.
In August, the Consumer Price Index for All Urban Consumers (CPI-U) rose 1.3% over the last 12 months.
The 10-Year Breakeven Inflation rate is only 1.66% today.
Some commonly cited inflation hedges include: TIPS, bank-loan funds, commodities, gold, and REITs.
Although stocks are not a direct hedge, long-term they usually perform well during inflationary periods.
I'm most interested in TIPS for dedicated inflation protection.
While TIPS protect against inflation, they are not immune to interest rate risk.
For example, VAIPX lost roughly 8.8% between May and August 2013, when rates rose sharply.
VAIPX has a maturity of 8.4 years and a duration of 7.8 years as of 08/31/20.
The average maturity and average duration for funds in the corresponding M* category are 8.47 years and 6.83 years respectively.
My current bond funds consist of domestic investment-grade bonds almost exclusively.
Unhedged foreign stocks comprise roughly 23% of my stock allocation.
What's the best way to implement TIPS within a diversified mutual fund portfolio which is approximately 70% stocks/30% bonds?
Derf
I’m thinking the Fed’s backing of some corporates has been the impetus for the good bond returns across board. But, if true, than I don’t understand why HY hasn’t done better. Just checking a couple of T.Rowe’s HY funds, RPIHX, RPHYX, I find both barely above water this year. Likely, others have done better, as T. Rowe generally hews to the conservative side.
Do I like bonds overall? No. I hold some as part of a broadly diversified portfolio. If you truly want diversification you’re going to have things that look promising and things that don’t appear promising under your umbrella.
Stay Safe, Derf
SS , Derf
While Yahoo offers some good data information, I wouldn't reply on their performance information with the consideration that this data appears to be NAV pricing and doesn't include distributions.
TR PRICE indicates +.47% YTD, M*, +.42% and stockcharts (which does indeed include distributions) indicates similar.
RPIHX has monthly distributions.
When in doubt or for full clarification, visit the "mother ship" for the full performance story, eh?
Information to keep in mind for future performance considerations when using Yahoo.
Derf
For total return, I presume a fund distribution for purposes of the chart performance is in the form of reinvesting the distribution back into the purchase of shares of the particular investment. We personally always have a fund/holding roll any distribution back into the purchase of more shares.